- Revlon failed at a S/4HANA implementation back in Feb of 2017 and this failure came to light in a quarterly call in March of 2019.
- We cover this failed S/4HANA case study.
Revlon is unified with SAP in hiding the failure of this S/4HANA implementation from investors. We will add this case to our current research into S/4HANA implementations which we are soon to release. We have been warning people about S/4HANA’s implementation problems for several years now. We covered this in the article Why Did SAP Fake S/4HANA Maturity So Aggressively? and explaining how both SAP and consulting firms have greatly misrepresented S/4HANA’s maturity. We covered this in the article Analysis of Mark Chalfen’s Article on S/4HANA Maturity
Notice this quote from Revlon’s Q4 2018 call (which occurred in May of 2019).
As highlighted previously, the company has identified a material weakness in it’s internal controls, primarily related to the lack of design and makings of effective controls in connection with the implementation of its new SAP ERP system in the U.S. We have already developed and begun to implement a remediation plan to address this finding and we’ll continue to enhance our internal control environment as we move forward. The company expects that this matter will not result in any changes to its financial results.”
The company’s problems with the ERP system surfaced shortly after Revlon launched S/4HANA in February 2017.
Such systems are designed to integrate everything from a company’s inventory of manufacturing goods to its customer relationships. In its annual report for fiscal year 2017, Revlon revealed the difficulties at its Oxford, North Carolina, manufacturing facility:
“[T]he Company launched the new ERP system in the U.S., which caused its Oxford, N.C. manufacturing facility to experience service level disruptions that have impacted the Company’s ability to manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S. The Company cannot provide assurances that it will remedy the ERP systems issues in time to fully recover these sales and/or that the ERP implementation will not continue to disrupt the Company’s operations and its ability to fulfill customer orders.”
The disruptions have continued, apparently, and Revlon’s warning a year ago has come true:
“To the extent that these disruptions occur in larger magnitudes or continue to persist over time, it could negatively impact the Company’s competitive position and its relationships with its customers and thus could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.”
I am not sure what the remediation plan will be for S/4HANA, but any ERP system that has been taken live that is running the business in production will cause large issues across that business. According to the quotes from ComputerWeekly.
“She attributed $54m of direct cost to remediating the SAP disruption.”
Most likely the actual number will end up being a good deal higher than this. Budgets for such remediation nearly always underestimate the total costs.
However, Revlon also stated the following.
“There is not a plan for future implementations at this point.”
This sounds like the project has failed. And this caused investors to note an inconsistency.
“According to the class action lawsuit, the company made false or misleading statements and failed to disclose the extent of its issues with the SAP implementation.”
How to Revlon Could Have Avoided from the S/4HANA Failure
We will cover something about this story that the mainline IT media entities, consulting firms and IT analysts will not touch — and the reason being that nearly every entity that reports on SAP, is also financially connected to SAP. And they do not declare their financial connections to SAP, appearing to be independent.
Revlon could have stayed entirely out of this by not listening to their consulting firm. This software was implemented back in 2017 so the project would have begun in 2016. This was a timeframe when the chance of taking S/4HANA live in a production setting would have been close to zero.
Let us review a sample of the public statements around S/4HANA by some of the largest SAP implementation firms.
Getting Bad Information About S/4HANA from Deloitte’s Website
Consulting companies want S/4HANA implementations, and this causes them to entirely leave out the maturity of the application. Other claims untethered to the maturity of S/4HANA also are highly dubious.
Let us look at two examples:
- S/4HANA “is at the center of many major digital transformations projects today.” In terms of the number of ongoing projects, it depends on what “many means” but it is not being widely implemented. Secondly, the number of S/4HANA projects that go live is very low. Is the success of the system measured by how many projects are ongoing (and billing hours) or what percentage go live? For Deloitte, the measure is naturally the number billing.
- How is S/4HANA a “game changer” if it has no new functionality over ECC, its performance is not very good due to the mismatch between HANA and TP, and Fiori is rarely implemented?
Getting Bad Information About S/4HANA from CapGemini’s Website
Many of the statements by the SAP consulting firms around S/4HANA are non-sensical. Companies that implement S/4HANA are replacing previous legacy or ERP systems, they are not moving from paper to digital, and are therefore not “digitizing” their business. The digitization process for the vast majority of companies that can afford a CapGemini implementation of S/4HANA would have most likely occurred in the 1970s or 1980s.
Catch Us if You Can!
The major SAP consulting companies have never shown concern for S/4HANA’s immaturity and began promotion S/4HANA as ready for implementation as soon as S/4HANA was introduced back in Feb 2015. At this time, only S/4HANA Finance, or the finance module (aka FI/CO) was available to be implemented. And SAP consulting companies pressed their clients to upgrade to just the finance module without the rest of the ERP system anyway.
If you talk to senior members of consulting firms in private (as I have) they will not acknowledge any responsibility except to maximize the revenues of the consulting companies. The approach is that they present whatever they want, and it is the buyer’s responsibility to do their own research to fact check the consulting firm.
- Financial Bias: Revlon, on the basis of financially biased information, and perhaps financial bias within IT implemented an ERP system with the highest level of risk associated with it of any ERP system that we track.
- Financial Bias of IT and Consulting Firms: The financial bias of SAP consulting companies is indisputable, but IT departments can appear to act as agents of vendors than of the company’s they “work for.” This can be due to the revolving door of senior decision makers between implementing companies and consulting firms, and the idea that implementing or overseeing the implementation of the most recent SAP applications is good for their career.
- The Established Pattern with S/4HANA Implementations: The Revlon failure fits into a long term pattern of S/4HANA project failures being suppressed. This is covered in the article How S/4HANA Cost Overruns and Failures are Suppressed?
Revlon’s Failure with S/4HANA Had “Nothing to do with S/4HANA’s Maturity?”
Several commenters who specialize in ERP failure analysis have stated that Revlon’s problems with S/4HANA had nothing to do with S/4HANA’s maturity issues.
As we are the only entity that we are aware of that honestly tracks S/4HANA maturity (see our critique of ASUG’s coverage in How Accurate Was ASUG on its S/HANA Poll?), and as these individuals do not work on S/4HANA implementations, its difficult to see how they would know this.
The previous version of S/4HANA, ECC, was mature — but this says nothing about S/4HANA. S/4HANA made many changes, particularly to the technical backdrop of the application that greatly reduced its implement-ability.
This is not to say that Revlon’s management of the implementation was not problematic (we don’t know if was or wasn’t), or if the implementation company did a poor job (they normally do), but if the product itself is not ready to be implemented, it is nonsensical to remove this issue from consideration as a prime contributor to the failure.
The S/4HANA Market is Filled with Entities Providing False Information About S/4HANA Readiness for Implementation
Virtually every SAP consultant that publishes or comments underestimates the difficulty with implementing S/4HANA and misrepresents S/4HANA to prospects. We have brought up the point of whether these consulting companies are implementing projects that they know will fail, or have the highest probability of failure, but simply don’t care. We covered this in the article Is it Right to Lead Clients into SAP Software Failure?
If you are a customer interested in implementing S/4HANA and want the worst possible advice, don’t forget to check our SAP Deception and Corruption Quadrant. Any of these firms will lie to you about S/4HANA, but they are all SAP Certified partners, so they are your approved sources, and you can choose from any of them. All of them will rob you. But there is a choice. As my previous clients have said, “we know the consulting firm is lying to us, but they have been recommended to us by SAP.”
The Revlon S/4HANA case study provides important insight into how implementation failures are covered up. It almost appears the release of information by Revlon was 1/2 unplanned. And the failure was not presented as a failure, but rather the failure was presented within the context of a ready-made plan to remediate failure. We can be quite confident that if we were to cultivate contacts within those that know at Revlon, they would tell us a very different story than that told in the quarterly call. The very amount of the remediation costs combined with the statements indicate that S/4HANA was cutover into production prematurely and that Revlon has had long term problems with S/4HANA.
Revlon said several inconsistent things, first that they lose money because SAP prevented them from fulfilling orders, and then that SAP was not stopping them from performing production. If Revlon is restricted in fulfilling it is impacting production if it isn’t stopping production. Furthermore, an ERP can’t “stop” production. It does not have a body that can turn the production line “off.” What it can do is order incorrect amounts of materials, and generally, create havoc in the manufacturing process.
Furthermore, Revlon would naturally be incurring all other types of internal costs. When National Grid failed in its SAP implementation (not S/4HANA), National Grid claimed the following remediation costs in their lawsuit against Wipro.
“The problems were so profound that the cleanup took more than two years to complete with a calculated cost of $585M, more than $150% of the cost of implementation.” – How National Grid’s SAP Implementation Damaged a Company
The investor lawsuit was initiated because some investors felt they had not been informed of the problems with the SAP implementation.
Financial Bias Disclosure
Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.
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